Microsoft's Sleepy E-Commerce Strategy

At the turn of the millennium, e-commerce software was all the rage. Retailers tried furiously to develop an online sales presence, and a plethora of start-up firms grabbed headlines by touting the features and functions in their product suites. As was the case with most of the dotcom boom, though, the hype eventually dissipated, and the IT industry turned its attention to other emerging areas. In fact, one could say that the e-commerce space became a bit sleepy.

Oracle Corp. roused the market from its slumber in November 2010. The company paid $1 billion for Art Technology Group (ATG) Inc., a move that set off a spate of acquisitions and a reshuffling among the market's top players (see "The Shifting E-Commerce Marketplace," p. 40). "Vendors like Oracle see e-commerce as an integral element in their business software product lines," says Gene Alvarez, research vice president for CRM and e-commerce research at Gartner Inc.

Absent from the recent activity has been software behemoth Microsoft. The company developed the Microsoft Commerce Server, which like many of its products works well in a Windows environment. However, the marketing of the product has taken a low (some would say nonexistent) profile. Product enhancements have dragged on, and Microsoft turned over a significant portion of its development efforts to a third party. So, it's not surprising that Microsoft has been losing mindshare as well as market share in the e-commerce space. At the moment, it's unclear how committed the company is to the product or to the market in general.

Changing Through the Years
Microsoft Commerce Server has been available since the mid-1990s in various iterations. Through the years, the vendor has melded different products, such as Merchant Server and Site Server, in order to deliver a comprehensive e-commerce solution. The last upgrade was Commerce Server 2009, which was a minor rather than major redesign. The company improved its information-manipulation and content-management functions by integrating the system more closely with SharePoint. The customization features of Commerce Server were enhanced with adjustable site and page templates, along with a Channel Configuration feature that allows merchandisers to create event-specific sites. Retailers have been trying to interact more with shoppers, so the Microsoft solution includes product reviews and ratings designed to solicit customer input.

The product has found some supporters. Headquartered in Atlanta, Ga., Newell Rubbermaid, which generated $5.8 billion in revenue in 2010, has a range of consumer brands, including Rubbermaid, Goody, Graco, Lenox, Parker, Paper Mate, Sharpie, Waterman and Aprica. The company's e-commerce presence emerged in a haphazard manner, with the brands separately selecting a range of e-commerce solutions. Though the systems arose autonomously, the company managed them centrally -- a scenario that was inefficient and costly.

The Shifting E-Commerce Marketplace

If a business is looking for an e-commerce solution, it will find plenty of potential suppliers. Bridgeline Digital Inc., Channel Intelligence Inc., Demandware Inc., Infopia Inc., IBM Corp., Jagged Peak Inc., Jenzabar Inc., NetSuite Inc., Microsoft, Oracle Corp. and Volusion are some of the vendors offering such solutions. Many of these companies have been in the e-commerce market for more than a decade, but some (especially a few of the larger companies) are neophytes that entered the space via recent acquisitions.

In some cases, the vendors are looking to use e-commerce to strengthen or broaden one of their prime product lines. In November 2010, Oracle acquired Art Technology Group (ATG) Inc., another leading e-commerce software provider, for approximately $1 billion. The acquisition was designed to fill a product-line void: "Oracle's previous e-commerce solution did not offer as much functionality as competitive solutions," notes Sucharita Mulpuru, a vice president at market-research firm Forrester Research Inc.

In March 2011, eBay Inc. acquired GSI Commerce for approximately $2.4 billion. As the auction and small to midsize business focus of eBay and PayPal began to plateau, eBay realized that its future growth must come from other markets. In addition to e-commerce, the company has moved quite aggressively into mobile commerce by purchasing RedLaser, Milo and CriticalPath.

Suppliers are also altering their approach. "One change we've noticed recently is more of a vertical and less of a horizontal focus from vendors," says Gene Alvarez, research vice president for CRM and e-commerce at Gartner Inc.

One example is Jenzabar, which has been developing a suite of business applications for institutions of higher education. In January 2011, the company acquired Allurent Inc. Allurent's founder, Joe Chung, had launched ATG in 1991 before founding a second e-commerce company in 2004.

Historically, Microsoft has focused on horizontal sales, leaving the vertical integration to its resellers. Whether that will continue is one of many questions the company will need to answer as its e-commerce strategy unfolds in the coming months.

-- P.K.

"We have a lean IT staff, and maintaining all the various e-commerce systems required a lot of attention," notes Bert Dumars, VP of e-business and interactive marketing for Newell Rubbermaid.

So in early 2007, the company began to search for a way to consolidate more than 30 different e-commerce systems. It decided to deploy Microsoft Office SharePoint Server (MOSS) 2007 along with Microsoft Commerce Server 2007, and use Microsoft BizTalk Server 2006 to integrate the e-commerce functions of its new Web sites with an ERP system from SAP AG.

The process began with a new site for the Graco baby products brand, and Newell Rubbermaid outsourced the development to LBi Atlanta, which developed the design, user experience and technical implementation. Gracobaby.com went live in December 2008, and the other sites have been following since. The company plans to finish moving all of its brands to Commerce Server 2009 by the end of 2012.

The change has resulted in a few significant benefits. Newell Rubbermaid is taking advantage of MOSS 2007 to set up blogs, RSS feeds and MySites, which infuse its sites with social-media features. For example, MySites is the foundation for MyGraco, personalized pages that visitors can use to make and share product wish lists, receive news related to the products they already own and customize their page views.

Because the sites have a common base, the company has been able to reduce its maintenance requirements. When the new Web sites are fully rolled out company-wide, Newell Rubbermaid expects to cut its maintenance fees by $750,000 annually, according to Dumars.

Deciphering the Enigma
Despite having gained some fans, Commerce Server remains one of Microsoft's most enigmatic solutions. "Microsoft Commerce Server appears to be languishing," says Rob Sanfilippo, an analyst with Directions on Microsoft. The vendor claims to have more than 5,000 customers for Commerce Server, but the product is viewed as an also-ran in the e-commerce space for a variety of reasons.

Since its launch, Commerce Server has been shuffled about among various lines of business. Microsoft, historically, has been focused on OSes and development tools, and the vendor tends to concentrate on products that generate more than $1 billion in revenue each year. Commerce Server does not fit into a traditional niche, and its sales have been well below the $1 billion mark, with revenue estimates in the range of $100 million annually. Consequently, the product has never really found a home among Microsoft's 90,000-plus employees.

One byproduct of the lack of juice has been lackluster marketing. "Microsoft hasn't been by to talk with us about Commerce Server in a few years," notes Gartner's Alvarez. Because it has basically gone underground, some observers have speculated that Commerce Server may eventually cease to be a standalone product, and its functionality may be absorbed into BizTalk Server successor products or exposed via Office client applications.

Moving to the Backburner
Adding fuel to such speculation is Microsoft's development efforts for Commerce Server. Typically, Microsoft completes a significant refresh of its key products every three years. A major upgrade was projected by the middle of 2010, but those expectations were not met. "Microsoft has taken on a number of high-profile product developments recently, such as its Windows Azure cloud movement," Gartner's Alvarez says. Such projects could be funneling off funding from other products, such as its e-commerce server.

In 2007, the vendor signed a partnership with Cactus Commerce, an Ottawa, Ontario, Canada-based e-commerce specialist that has worked with Microsoft for nearly a decade. The move was a bit unusual: "Application development is rarely a function that Microsoft outsources," Sanfilippo says.

Microsoft acquired the intellectual property assets Cactus had built on top of Commerce Server, and promised to repackage them in "the Microsoft way." Those features were expected to be delivered in the summer 2010 release, but for now the enhancements reside firmly on the backburner.

Microsoft might find it difficult to continue snoozing.

Retailers are honing their online presence. Market-research firm Forrester Research Inc. found that U.S. e-commerce sales grew 12.6 percent in 2010 to $176 billion. That number was up from 2009's 11 percent increase, and the market-research firm expects sales to reach $279 billion in 2015.

The Next Wave of E-Commerce Functions
The need for new e-commerce capabilities is evident. Corporations want to understand consumers' behavior better and adjust their services appropriately in areas such as marketing, Web site design and supply-chain management. For example:

In marketing, retailers want to understand the effectiveness of their various marketing campaigns. Is the customer reaching a Web site because of newspaper advertisements, Facebook postings, television ads or Google searches?

For Web site design, corporations want to make their Web sites more appealing. They want to track when individuals arrived, how much time they spent on different pages, click-through rates, how many steps consumers took until they made a purchase, where they abandoned a transaction and where they left the site.

In supply-chain management, merchandisers want to identify customer needs in real time, present them with content that sparks add-on sales, instantly trigger changes in their supply chain and assuage customer concerns before the person logs off.

In sum, rather than concentrate on how individual apps perform, companies want to see how the buying process unfolds.

Delivering such capabilities requires that businesses tie their e-commerce solutions into their ERP and CRM suites. This change in outlook is one reason why Oracle gobbled up ATG. Microsoft has many of the pieces needed to deliver the desired functionality. The profile of the company's Dynamics ERP and Dynamics CRM lines has been rising, and represents an alternative to products from Oracle and SAP. But while Microsoft has the tools and the marketing to become a more significant force in the e-commerce market, does it have the desire to compete in that space? For now, at least, the company seems content to take a nap.